01 Dec Vietnam: the world’s favourite investment destination
If there is one nation that has gradually been in the ascendancy, it is Vietnam. There were very few countries who managed to post a positive GDP growth during the depths of the pandemic and Vietnam was only one in Southeast Asia to achieve this feat. It showed a growth of 2.91% in 2020, despite a series of lockdowns. In fact, in the last quarter of 2020, the country saw a growth of 4.48%.
There were two reasons for it:
1) The country’s exceptional handling of the pandemic.
2) Free trade deals with UK, US, EU, and RCEP countries who have large manufacturing base in the country. This gave it a price advantage.
But what has made these deals with these countries possible?
The story starts right after the war with the US. The country decided to change its policy once the two parts of the country merged. In the 1980s, it was called the open door policy. As part of this, Vietnam abandoned its socialist approach of relying on an agrarian economy and small industry in favour of heavy industry. This liberalization extended late into the 1990s when it created special export zones for manufacturing of export quality products. The liberalization of the country has since been managed by the state.
Similarity between China and Vietnam
This state managed liberalization is similar to one of Vietnam’s trading partners: China. Since the war, the Vietnamese, it seems, have been looking to China for lessons on governance and growth. As China gains prominence in global conversation, the more the belief in Vietnam that the model works.
What works for Vietnam is the availability of cheap and hard-working labour. According to a 2019 report, an average work week in Vietnam was about 48 hours. Though there is a push to decrease that to 40 hours. For context, developed nationals such as Australia are pushing their work weeks down to 35 hours. This has made Vietnam an attractive destination for manufacturing industries, where a larger volume of products can be churned out when compared to other major countries.
This has made understanding Vietnam easier for big investors because the parallels to China are easier to draw, which has triggered large investment into the country.
During the pandemic, some countries have made plans to move away from China.
In January 2021, a unit of Taiwan’s Foxconn Technology, a key Apple supplier, decided to invest $270 million in Vietnam. This was part of a plan to move some iPad and MacBook assembly from China to Vietnam. Meanwhile, US chipmaker Intel is increasing its investment in Vietnam to $1.5 billion. However, Vietnam is nowhere close to replacing China. Afterall, the Asian powerhouse has a 15-year head start on its smaller neighbour.
How does this translate?
The similarity in the two countries and controlled liberalization has led to a massive influx of large technology companies into the country. Ride hailing unicorn, Grab, recorded over 300 million rides in 2019 and over 60 million in 2020. The pandemic played spoilsport but the sector is set to be valued at over $4 billion by 2024. Ecommerce, too, has been valued at over $11 billion, which was just about 5% of the total retail market. There seems to be a growing enthusiasm for the way Vietnam matures into one of Asia’s leading powerhouses.